Perry and the Stimulus: It's Complicated

As Gov. Rick Perry has launched his presidential campaign, he’s turned to a talking point familiar to anyone who has heard him rail against the federal government over the last two years: the perfidy of the roughly $800 billion stimulus plan orchestrated by the Obama administration in 2009.

“Washington’s insatiable desire to spend our children’s inheritance on failed ‘stimulus’ plans and other misguided economic theories have given us record debt and left us with far too many unemployed,” Perry said in his announcement speech in South Carolina on Saturday.

In his 2010 book, Fed Up! Our Fight to Save America From Washington, Perry wrote this: "We are fed up with bailout after bailout and stimulus plan after stimulus plan, each one of which tosses principle out the window along with taxpayer money."

But the reality of Perry's relationship with fed-stim is complicated. Through the second quarter of this year, Texas has used $17.4 billion in federal stimulus money — including $8 billion of the one-time dollars to fund state expenses that recur over and over. In fact, Texas used the federal stimulus to balance its last two budgets.

It is true, as presidential candidate Perry says, that the state turned down some of the money from the American Recovery and Reinvestment Act of 2009 because it had strings attached. Texas didn't apply for education grants that came with conditions, and the governor famously refused $556 million in federal stimulus funds for the state's unemployment insurance program, saying the conditions that came along with the cash would increase the long-term costs of the program.

But Texas happily accepted the rest. In 2009, lawmakers initially used stimulus money to fill most of a $3.3 billion hole in what was then the state’s current budget, the one for the 2008-09 biennium (Texas operates on two-year budget cycles, and by law the state budget must balance). Medicaid spending overshot what had been budgeted, and lawmakers had to approve so-called supplemental appropriations to cover the difference. They used federal funds to supplant spending that would otherwise have come from the state.

Of course, they could have tapped the state’s Rainy Day Fund. Created in 1989, the Economic Stabilization Fund, as it is officially called, is intended to be used to “prevent or eliminate a temporary cash deficiency in general revenue,” according to the Texas Constitution. At the time state lawmakers were wrestling with paying down the 2008-09 deficit and facing an even bigger shortfall in the 2010-11 budget, the Comptroller of Public Accounts estimated that about $9.1 billion would be available in the Rainy Day Fund. Instead, lawmakers used federal dollars.

A Perry spokeswoman told CNN Money earlier this year that stimulus dollars weren’t critical to solving the state’s budget woes. "Texas would have balanced its budget regardless of the presence of stimulus dollars," said Lucy Nashed, the governor's deputy press secretary. "This money came from the pockets of Texas taxpayers, and we are committed to getting our fair share of these dollars, which would have otherwise been disbursed to other states."

About half of the total $17 billion in federal stimulus money that came to Texas was spent on so-called “shovel ready” projects — "things we would not have done with our own money," says Eva DeLuna Castro, a senior budget analyst for the Center for Public Policy Priorities, a liberal think tank based in Austin. For example, there was money to help people buy energy-efficient appliances. While that money didn't help the state budget, it did go into the economy.

In the second quarter of this year alone, federal stimulus money in the state budget helped create or retain 40,411 Texas jobs, according to the Legislative Budget Board, which keeps a quarterly accounting of the money and how it's spent.

"What did that do for the economy and the state budget?" DeLuna Castro asks. "Who got jobs who would not have? How bad would it have been without that money?"

"From a general revenue standpoint, they would have had to make $6 billion or so in cuts they didn't have to make until later," says Talmadge Heflin, director of the Center for Fiscal Policy at the conservative Austin-based Texas Public Policy Foundation. Heflin, a Republican and former state House Appropriations chairman, wrote the 2003 state budget in similar fiscal circumstances, using $1.6 billion in federal block grants to balance the budget that year. He says the state might have been better off without the money, spreading cuts over four years instead of just two. But he acknowledges that's not the way things work.

"I'm not going to second-guess that," Heflin says. "When you're short of money and a pot of money shows up, it's hard for politicians or budget writers to turn it down."

Nonetheless, Perry remained a stalwart critic of the stimulus funds. "The Democrats think this bill will change our country's financial fortunes, but you and I know better,” he wrote on his campaign website. “This administration is saddling future generations with an increasingly unbearable debt."

As it turned out, instead of getting Texas through a short rough patch, the stimulus money merely bought the state some time, which ran out when lawmakers turned to the 2012-13 budget earlier this year.

"It just prevented Texas from making cuts two years earlier than they would have made them," says Dale Craymer, president of the Texas Taxpayers and Research Association, a business trade group.

When lawmakers arrived in Austin for the 82nd Legislature in January, they faced a grim situation: a $4 billion deficit in the current 2010-11 budget and a much larger projected shortfall of between $15 billion and $30 billion in the 2012-13 budget if state services were to be maintained.

To close the $4 billion deficit, lawmakers used the Rainy Day Fund after Perry finally relented. But he was adamant that it not be touched to solve the much larger problems in the upcoming 2012-13 budget. And he vowed to veto any budget that called for tax increases.

Ultimately, the Legislature passed a 2012-13 budget that slashed spending almost across the board, including cutting $4 billion in education spending necessary to keep pace with Texas’ explosive population growth. Overall, non-stimulus federal money makes up 32 percent of the budget — about $54.4 billion of what the state government plans to spend over the next two years.

Texas lawmakers also resorted to a budgetary sleight of hand of the type Perry stridently condemns the federal government for employing, leading many to complain when the governor proudly says the budget he signed forces the state to live within its means. The state budget lowers the estimate of what Texas will have to spend, by federal law, on Medicaid in 2012-13 by $4.8 billion in hopes that “operational efficiencies” will be found or that an improving economy will mean more tax dollars fill the state’s coffers.

If not, lawmakers in the next Legislature will have to find a way to cover that hole, possibly by again going into the Rainy Day Fund. What they won’t have available are any federal stimulus dollars.